Near the end of a lengthy strategy session at a prominent S&P 500 company, a senior executive posed a simple yet profound question: “Are we winning?” It sparked an intense discussion. On the one hand, the company had been delivering impressive financial results for nearly two years, exceeding both internal plans and analysts’ expectations. As a result, most executives received healthy bonuses. On the other hand, the company’s five-year stock price appreciation was below the S&P 500 average, indicating that investors’ confidence in its future performance was below average. Employees were burned out. Innovation was sluggish, and the release dates for next-generation products kept slipping. Collaboration among operating units was lacking. Some analysts valued the company at less than the sum of its parts.

The senior leaders resolved to increase the company’s value by breaking down organizational silos and increasing teamwork to get everyone working toward mutually beneficial goals. As we write this article, they are endeavoring to do that. In the process, they are addressing fundamental questions that were swept under the rug for years: What does winning mean to us? Are we using the right scorecard to measure and manage progress? Which strategic factors are constraining our success?

In this article we will explain why maximizing company value for the benefit of all stakeholders is the right objective. We will identify seven strategic factors and describe how to align them to unleash a company’s collective strengths. Drawing on the inspiring example of Self Esteem Brands, a fitness, health, and wellness company, we will show how to build an extraordinary organization that creates extraordinary value.

The Current State of Strategy

Facing heavy pressure to improve the worth of their company, many managers have turned to what we call “spreadsheet strategies.” They set financial goals sufficient to meet analysts’ expectations and then fill in row by row, column after column, tweaking the numbers to find a plan that appears plausible and then backing into ways to achieve it. That approach has four flaws.

First, it grants excessive credence to archaic accounting rules as the best way to measure the value of modern companies. Accounting rules designed for the industrial age are less relevant in an era of digital technologies and powerful intangibles. Consider the valuation of assets. An asset is any resource (tangible or intangible) controlled by a company that can produce future economic value—though it might take decades to flow into income statements. Ocean Tomo, a provider of advisory services on assets, calculates that in 1975 tangible assets—such as land, buildings, and machinery—accounted for 83% of the market value of the S&P 500. By 2020 that figure had plummeted to just 10%. The remaining 90% consisted of intangible assets such as patents, trade secrets, and brand equity. Annie Brown, the valuation director at Brand Finance, a brand advisory consultancy, told us that today only 24% of those intangibles are disclosed on S&P 500 balance sheets. In other words, nearly 70% of all assets driving the market valuations of major companies are invisible on financial statements and spreadsheets. Nevertheless, those assets are the reason that the stock price of Amazon (founded in 1994) soared even though the company didn’t realize a quarterly profit until 2001 or positive annual free cash flow until 2002.

Second, spreadsheet strategies typically extrapolate positive linear relationships ad infinitum. For instance, if a $10 million reduction in R&D spending correlated with improved profits last year, then this approach suggests that a $20 million cut would double the financial benefits in the following year. If market share increased for eight years but recently declined for two, spreadsheet regression functions might persuasively predict that market share should soon return to its upward-sloping trend line. Simplistic extrapolations overlook the realities of diminishing returns and the complexities of competitive system dynamics.

Third, these strategies assume that practices are interchangeable. When leaders allocate spreadsheet targets to individual operating units—along with powerful incentives to achieve them—the heads of the operating units often look to the “best practices” of other companies with better financial results. But strong financial performers sometimes succeed despite certain practices rather than because of them, and transplanting practices from one complex system to another rarely yields the same results. Various parts of a company may adopt diverse management practices that serve their own purposes even when they are misaligned with practices in other parts of the company.

Fourth, spreadsheet strategies divorce corporate strategy from unit operations. Division leaders, tasked with achieving daunting financial targets, come to view corporate strategy sessions as irrelevant to their personal responsibilities. They spend most of that meeting time on their devices, communicating with their units instead of collaborating with their peers. Eventually this disunity causes a company to operate like a collection of loosely affiliated businesses—and its shares to trade at conglomerate discounts. That leads to communication breakdowns, lost synergies, and increased overhead costs associated with the additional supervision and conflict resolution required to compensate for the lack of strategic fit.

What Is Strategic Fit?

Strategic fit is the degree of alignment and amount of synergy in a company’s business system. When a firm’s strategic fit is optimal, it creates beneficial multiplier effects among all the components of the business. One component, for example, is employees. When employees are aligned with other components—such as the company’s purpose—their engagement increases. Engaged employees develop more-innovative products, the kind that create enthusiastic and loyal customers. Enthusiastic customers attract other customers, improve financial results, and make employees’ jobs more fulfilling. Enhanced financial performance can generate the money needed to provide better employee benefits, to invest in creating appealing customer offerings, and to contribute more to the community. Strategic fit produces a system that is nearly impossible for competitors to replicate—provided the company adapts effectively to changing conditions.

This concept is sorely underutilized but not completely new. In the mid-1800s Charles Darwin popularized the phrase “survival of the fittest,” explaining that groups with traits most advantageous to their environment are most likely to survive, and that cohesive, collaborative teams outperform selfish, contentious groups. In the 1960s Alfred D. Chandler Jr. showed how market changes and new technologies necessitate strategy changes, which drive organizational changes—leading to his “structure follows strategy” principle. In his 1996 HBR article “What Is Strategy?” Michael Porter advanced the concept of strategic fit, emphasizing that the system of activities is more critical than individual parts, and warning against attributing success to individual competencies alone. Roger L. Martin and A.G. Lafley’s “strategy choice cascade” broke strategy formulation into five key choices, with each reinforcing the others.

Unfortunately, strategic fit has been more easily described by academics than done by executives. Even leaders who appreciate the value of strategic fit struggle to understand how to achieve and sustain it. Which components must align? Is the process a cascading sequence of strategic choices? How often should our strategic fit be reviewed?

In previous books and articles, we have offered executives methods to improve components of their strategy. We have described, for example, ways to develop a clear and compelling corporate purpose (see “What Successful Purpose Statements Do Differently,” HBR.org, March 1, 2024); how to create an operating model that increases organizational agility (see Doing Agile Right: Transformation Without Chaos, Harvard Business Review Press, 2020); and how to increase value creation for the benefit of all stakeholders, including how individual companies can model and measure it (see “How to Create a Stakeholder Strategy,” HBR, May–June 2023). In this article we will explain how executives can tie these and other essential components of a successful strategy together, creating a synergistic system that continually increases company value by improving strategic fit.